Liberal Groups to Propose Routes to Smaller Deficit

By offering proposals of their own, the organizations are seeking to sway the debate in favor of fewer reductions in domestic spending, more cuts in the military and higher taxes for the wealthy.

JACKIE CALMES

WASHINGTON — As President Obama’s fiscal commission faces a deadline this week for agreement on a plan to shrink the mounting national debt, liberal organizations will unveil debt-reduction proposals of their own in the next two days, seeking to sway the debate in favor of fewer reductions in domestic spending, more cuts in the military and higher taxes for the wealthy.

The proposals from two sets of liberal advocacy groups highlight the deep ideological divides surrounding efforts to deal with the nation’s budgetary imbalances, even as Mr. Obama’s bipartisan commission works to finalize its recommendations by Wednesday — and struggles for a formula that would get the backing of at least 14 of its 18 members, the threshold for sending its proposal to Congress for a vote.

Inside the commission, expectations remain low that a supermajority can agree on a plan, given most Republicans’ opposition to raising taxes and most Democrats’ resistance to deep spending cuts and reducing future retirees’ Social Security benefits.

Yet the panel’s proponents hope that agreement among even a bipartisan minority can be the basis for future action to arrest the unsustainable growth of government debt in coming years.

Over the holiday week, the commission’s staff revised the draft plan from its chairmen — Alan K. Simpson, a former Senate Republican leader, and Erskine B. Bowles, president of the University of North Carolina system and a former chief of staff to President Bill Clinton — to reflect contributions made at meetings this month by the rest of the commission, six senior members of Congress from each party and four business and union leaders.

Even if the commission fizzles, its chairmen’s plan and the alternatives — about a half-dozen packages from centrists and conservatives, and now the two from the liberal groups — have demonstrated a rough consensus for all their differences: action is needed once the economy recovers, and the fiscal problem cannot be resolved by spending cuts or tax increases alone. Both military and health care spending should be on the cutting table. So should “tax expenditures,” the scores of popular but costly tax breaks for individuals and corporations, including the mortgage-interest deduction. And Social Security’s finances require a long-term fix.

Nothing of the sort is before the lame-duck session of Congress that resumes this week. Instead, the parties and Mr. Obama are in effect fighting over how much to add to the long-term debt: Democrats want to extend the expiring Bush-era tax cuts except for rates in the highest income brackets, at a projected 10-year cost of about $3 trillion, while Republicans want to make all the tax rates permanent, which would cost more than $4 trillion — roughly the same amount the Bowles-Simpson plan would save in a decade.

And while Mr. Obama and Congressional Republicans agree that lawmakers should not earmark spending for special projects, a ban would hardly dent the projected annual deficits.

On Monday, the progressive policy organizations Demos, the Economic Policy Institute and the Century Foundation will unveil a liberal blueprint. Their report says that unlike the centrist plans, this version “stabilizes debt as a share of the economy without demanding draconian cuts to national investments or to vital safety net programs.” It would, however, leave the debt at a higher level as a share of the economy than the centrist plans.

On Tuesday, a separate coalition of liberal groups, economists and labor leaders — the Citizens’ Commission on Jobs, Deficits and America’s Economic Future — will release a similar outline.

Both plans are comparable to one recently proposed by Representative Jan Schakowsky, a liberal Democrat from Illinois who is a member of the Bowles-Simpson commission. Ms. Schakowsky opposed the chairmen’s draft as too hard on the middle class.

The liberal plans’ differences with centrists and conservatives include the following:

¶Timing. While other debt-reduction plans would take effect as early as 2012, the progressives oppose any austerity measures until perhaps 2015, once unemployment is at or below 6 percent.

¶Stimulus spending. Most of the plans call for immediate additional stimulus measures, arguing that they will help create tax-paying jobs and reduce spending for relief to the jobless. But the liberals seek more spending in the short and long term: for now, financing for unemployment assistance, public works projects and aid to state and local governments to prevent continued layoffs of teachers and other employees, and for years beyond, “pro-growth investments” in areas like education, infrastructure, child care, rural broadband and scientific research.

¶Military spending. All the plans would reduce projected spending for the military, but the liberal plans would cut deeper.

¶Health care cost constraints. Congressional Republicans, including Representative Paul D. Ryan of Wisconsin, who has a comprehensive conservative plan, would repeal the new health care law. Mr. Ryan would also privatize Medicare, Medicaid and Social Security in the future. In contrast, the liberal and centrist plans would expand on the new law’s long-term savings policies.

The liberal plans, however, would rely more on limiting payments to doctors, hospitals and other care providers and less on increasing out-of-pocket costs for beneficiaries, except for upper-income people. The liberals also call for a public option to compete with private insurers in new exchanges for consumers, and for the government to negotiate with pharmaceutical companies for lower prescription-drug prices.

¶Social Security. While centrist plans would raise payroll taxes for the affluent and reduce benefits scheduled for many new retirees in future decades, the progressive plans would only raise taxes to make the program solvent until late in the century.

Liberals and centrists would raise the cap on taxable wages to cover 90 percent of all wage income; the level has slipped from that level in recent years. If it applied in 2012, for example, workers would pay Social Security taxes on income up to about $156,000 instead of $113,700.

¶Taxes. The progressive plans rely heavily on higher revenues from the rich and would reduce taxes for low-wage workers.

The centrist and liberal plans eventually would end the Bush tax rates, restore estate taxes, and limit or eliminate tax breaks for corporations and individuals — so-called tax expenditures — that cost more than $1 trillion in revenues annually. The liberals would use the revenues for deficit reduction and increased domestic spending; centrists would use them to pare the deficit and to significantly lower individual and corporate income tax rates.

The liberals also call for a surcharge on income above $1 million. They would limit other tax breaks that benefit the affluent and tax capital gains and dividends at higher ordinary income rates. The liberal plans would impose a carbon tax to encourage clean energy and to raise revenues, which would be split between deficit reduction and energy rebates for consumers. They would also raise the federal gasoline tax to replenish the federal highway trust fund.

Both liberal plans would impose a tax on financial transactions to raise revenues and discourage speculation.